Livestock Analysis (VIP) -- December 20, 2013

December 20, 2013 08:26 AM


Price action: Lean hog futures closed mixed in narrow trading with a negative bias. For the day futures closed 17 1/2 cents lower to 20 cents higher and posted losses for the week.

5-day outlook: Supplies are strong and wholesale demand is weakening, which points to more price pressure next week. The disjointed holiday-shortened week could be volatile with a bias toward the downside.

30-day outlook: If retailers feature pork following the holidays and supplies ease due to the impact of PEDV, cash prices could firm in January. Cash prices normally firm seasonally in January and traders look for that trend to continue as the February future contract carries a $6 premium to the cash index.

90-day outlook: Hog supplies should ease seasonally, which will bring support to cash prices. Wholesale pork demand normally rises seasonally, as well. If retailers promote pork extensively because of its attractiveness in price and supply versus beef, cash and futures prices should move higher as well. Traders will be looking for indications of a potential buildup in supplies coming later this year due to the decline in feed costs.

Hedgers: 50% of expected 1st-qtr. marketings are hedged in Feb. lean hog futures at $89.70.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.




Price action: Live cattle futures ended on a strong note, posting strong gains for the week. Feeder cattle futures posted more modest gains for the week. Futures saw a boost from position squaring ahead of this afternoon's Cattle on Feed (COF) Report, as well as concerns about stressful feedlot conditions as the Plains and Midwest prepare for another wintery blast this weekend.

5-day outlook: Traders were prepared for a positive COF Report and that's what they got, which could temper followthrough buying on Monday. While On Feed and Marketings at 95% of year-ago were close to the pre-report guesses, Placements at 97% of year-ago were around four percentage points smaller than expected.

30-day outlook: Tightening supplies, as reminded by today's COF Report, will continue to limit downside risk in futures as long as there are no major demand concerns. Tight calf supplies will also limit downside risk for feeder cattle futures.

90-day outlook: In 2014, cattle supplies are expected to be tighter quarter-over-quarter compared to 2013 levels. This should produce a rise to a new all-time high during the first half of the year as the 10-year cycle high was pushed back by the Southern Plains drought.

Hedgers: Fed cattle producers should carry all risk in the cash market for now. Feeder cattle sellers and buyers should also carry all risk in the cash market for now, but feeder cattle buyers should stay in touch to establish long coverage.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.


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